It's Not Enron, It's Facebook

Investors have started to wonder if their investments are a house of cards.

However, this is not the first time this issue has come up. Prior to going public, the company disclosed in SEC documents that of its 900 million users reported in the first quarter, 5% to 6% of them were also false or duplicates, or 55 million to 60 million.

As much as I appreciate the company's openness about this issue, I continue to wonder why it insists on reporting figures that include what it knows to be somewhat misrepresented. In this case, it just reported 955 million active monthly users when according to its own investigation the real number is possibly 100 million fewer.

The answer is simple. Its business model relies on targeted advertising. The higher the number the more it can charge.

As Enron changed the world of auditing and corporate ethics, it seems Facebook will have a similar impact in the way investors view future initial public offerings. What's more, the company has created a much-needed pessimism toward anything that is built up as "larger than life."

Facebook's continued stock decline will likely change the way future IPOs are viewed and scrutinized and become public issues in the same way Enron brought corporate change with Sarbanes-Oxley.

But that's where the similarities end. Facebook is not Enron. Where it was clear with Enron that criminal acts had taken place, Facebook's only crime in this situation is that it has failed to live up to investors' expectations.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.